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Home arrow Business & Finance arrow The art of RF (riba-free) Islamic banking and finance

Nonprofit and Religious Centers and School Financing

One of the goals of RF financing is to assist individuals and communities in their efforts to pursue and live an RF lifestyle. That includes worshipping and educating its followers and their children in the faith each community believes in. In that regard, RF banking is committed to facilitating the process of worship and assembly to perform worship practices and rituals in sanctuaries like temples, churches, masjids (mosques), schools, and community centers. In addition, RF banking and finance is keen to help facilitate the establishment of schools and educational institutes that enhance the process of general education with moral and ethical values derived from the faith these communities believe in without the slightest form of discrimination.

At LARIBA Bank of Whittier, we financed many worship and educational facilities like churches, masjids, and schools. In the process, we have perfected a methodology for RF financing of such nonprofit organizations. To start with, it should be acknowledged that operating a nonprofit organization is largely a voluntary activity that can change from time to time depending on the mood and motivation of the persons involved, the interpersonal relations and homogeneity of the leaders involved, the community, and the religious leaders involved. I was actively involved in this work for over 45 years since coming to the United States in 1968, when the American public knew very little about Islam and the Muslims. The lesson learned is that it is extremely challenging to manage such nonprofit organizations. Another important factor is the sensitivity and sometimes the religious restriction regarding the foreclosure of a place of worship or a religious school, let alone the reputation risk and challenge met by the RF bank when it forecloses on such places. The other challenge in that regard is that the RF bank is not in the business of operating such facilities knowing that it is prohibited, by regulations, for banks to enter into the operation of other nonbanking activities.

The first step in the process of financing these nonprofit organizations is to establish the size of the community that uses these facilities by asking questions like:

■ How many worshippers come to the weekly congregational prayers and how much money in donations are collected on a weekly basis?

■ How many attend the annual feast prayers and celebrations (like Christmas, Hanukkah, Eid-ul-Fitr, and Eid Ul Adha)?

■ How many fund-raiser events are conducted annually, and how much money in donations is raised?

■ Who is the religious leader in charge and his or her background and character?

■ Who are on the board of directors and those who are the real responsible “movers and shakers” in the community?

After evaluating the community, interviewing its leaders and key members, and analyzing its operating and financial data, the RF bank's credit department decides if this is a community that the RF bank can proceed to look into financing its facility. If the answer is yes, the next step is to ask the leaders to look for three to five significant members of the community who are willing to cosign the financing documents as coborrowers. The RF banker makes it clear to each of the cosigners that he or she will be personally responsible for the financing they signed on, and that will appear on their credit report and will affect their borrowing ability in the market. For example, if the financing required is a $1 million, the community can find five members who will be responsible for $200,000 each to apply with the center or school for financing. The reason we recommend three to five and not one person or more than five is based on experience. Practical experience showed us, at the LARIBA System that if one is involved, that person may be accused and may in fact be tempted to act as if he owns the community and singularly decides for it. This eventually creates community breakdown, and that is not what we at the community RF bank are working hard for. However, if there are too many cosigners, the chance of infighting becomes greater and leads to the same bad results. Another important and fundamental value of involving cosigners is to test the commitment of the community leaders to the cause by signing their names on the bottom line of the credit facility. In fact, this “acid” test reflects, based on experience, the seriousness of the community leaders about the project that is under financing consideration. In fact, about two to three centers out of seven applying centers pass the test and are considered for further financing.

Finally, it should be stated that financing nonprofit faith-based organizations is a great enriching experience and the financial performance is impeccable — this is, of course, depending on whether the structure of the RF financing is done correctly.

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